SECOND MODIFICATION AGREEMENT
Exhibit 10.35D
THIS SECOND MODIFICATION
AGREEMENT (“AGREEMENT”) is made to be effective as of the 9th day of
August, 2005, by and between MANUFACTURERS AND TRADERS TRUST COMPANY (“BANK”); MARYLAND INDUSTRIAL
DEVELOPMENT FINANCING AUTHORITY (“ISSUER”); and AVALON PHARMACEUTICALS, INC. (“BORROWER”).
RECITALS
The ISSUER has issued and sold certain bonds (“BONDS”) in the aggregate amount of Twelve
Million Dollars ($12,000,000) and has lent the proceeds thereof to the BORROWER in accordance with
the terms of a Loan Agreement dated April 1, 2003 (“LOAN AGREEMENT”). In order to enhance the
marketability of the BONDS, the BORROWER has entered into a Letter Of Credit Agreement dated April
1, 2003 (“LC AGREEMENT”) pursuant to which the BANK issued to the Trustee named therein for the
holders of the BONDS the BANK’S irrevocable letter of credit (“LETTER OF CREDIT”). As a condition
to its issuance of the LETTER OF CREDIT, the BANK required the ISSUER to insure a portion of the
BORROWER’S obligations under the LC AGREEMENT in accordance with the terms of the Issuer’s
Insurance Agreement dated April 1, 2003 (“INSURANCE AGREEMENT”).
As a condition precedent to the issuance of the BONDS and the issuance of the LETTER OF
CREDIT, the BORROWER was required in accordance with the terms of a Collateral Pledge And Security
Agreement And Control Agreement dated April 1, 2003, as amended by an Amendment thereto dated July
6, 2004 (“COLLATERAL/CONTROL AGREEMENT”) to post and maintain cash collateral and/or securities in
Account Number 80366 (“COLLATERAL ACCOUNT”) held by and maintained with Allfirst Trust Company
National Association (“SECURITIES INTERMEDIARY”), which COLLATERAL ACCOUNT and the cash, securities
and properties therein were pledged in accordance with the terms of the COLLATERAL/CONTROL
AGREEMENT to secure to the BANK the BORROWER’S “LETTER OF CREDIT OBLIGATIONS,” as such term is
defined in the LOAN AGREEMENT. The SECURITIES INTERMEDIARY was subsequently merged with the BANK,
with the BANK being the surviving entity. The BANK, the ISSUER, and the BORROWER entered into an
Amended And Restated Modification And Consent Agreement dated to be effective as of February 15,
2005 (“FIRST MODIFICATION”). Hereafter, the BONDS, the LOAN AGREEMENT, the LC AGREEMENT, the
INSURANCE AGREEMENT, the COLLATERAL/CONTROL AGREEMENT, the FIRST MODIFICATION, and all other
documents and agreements which evidence, secure, relate or pertain to the BONDS and the loan of the
proceeds of the BONDS by the ISSUER to the BORROWER, or the issuance of the LETTER OF CREDIT by the
Bank or the BORROWER’S obligations to the Bank in connection therewith are collectively referred to
as the “DOCUMENTS.”
The BORROWER has requested that the ISSUER and the BANK agree to grant certain waivers of
covenants of the BORROWER set forth in the DOCUMENTS, as provided in Section 2 below, and agree to
certain modifications to various of the DOCUMENTS. The BANK and the ISSUER have entered into this
AGREEMENT to set forth the terms upon which the BANK and the ISSUER will agree to the requests of
the BORROWER.
NOW, THEREFORE, in consideration of the premises, and other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:
AGREEMENT
Section 1. Acknowledgment Of Obligations. The BORROWER acknowledges that: (a) each of
the DOCUMENTS to which the BORROWER is a signatory constitutes the valid and binding obligation of
the BORROWER; (b) the DOCUMENTS are enforceable against the BORROWER in accordance with all stated
terms; and (c) the BORROWER has no defenses, claims of offset, or counterclaims against the
enforcement of the DOCUMENTS in accordance with all stated terms.
Section 2. Waiver Of Financial Covenants. The BANK agrees to waive compliance by the
BORROWER with the financial covenants (“FINANCIAL COVENANTS”) set forth in Sections 10.1(h)(i)
(Minimum Liquidity); 10.1(h)(ii) (Minimum Current Ratio); and 10.1(h)(iii) (Minimum Tangible Net
Worth) for the period commencing on June 30, 2005 and ending on March 31, 2006. Commencing on
April 1, 2006 and continuing thereafter, the BORROWER shall comply with each of the FINANCIAL
COVENANTS, with the first subsequent test date of the FINANCIAL COVENANTS to begin on April 30,
2006.
Section 3. Modification Of Collateral/Control Agreement. (a) In consideration for the
execution and delivery of this AGREEMENT by the BANK and the ISSUER, the BORROWER agrees to modify
the COLLATERAL/CONTROL AGREEMENT to provide that the “MINIMUM REQUIRED CASH COLLATERAL AMOUNT,” as
such term is defined in the COLLATERAL/CONTROL AGREEMENT, shall be increased by $500,000 such that
the MINIMUM REQUIRED CASH COLLATERAL AMOUNT to be maintained by the BORROWER as of the date of this
AGREEMENT shall be increased from $5,813,196 to $6,313,196, which shall be the MINIMUM REQUIRED
CASH COLLATERAL AMOUNT until April 1, 2006. Commencing on April 1, 2006 and on the first day of
each April thereafter, the MINIMUM REQUIRED CASH COLLATERAL AMOUNT shall be decreased to the amount
corresponding to such date as set forth in the table below, which, for such dates, replaces and
supersedes the table set forth in Section 2.3(a) of the COLLATERAL/CONTROL AGREEMENT:
| Minimum Required | ||||
| Dates | Cash Collateral Amount | |||
April 1, 2006
|
$ | 6,019,731 | ||
April 1, 2007
|
$ | 5,397,838 | ||
April 1, 2008
|
$ | 4,775,945 | ||
April 1, 2009
|
$ | 3,922,137 | ||
April 1, 2010
|
$ | 3,068,329 | ||
April 1, 2011
|
$ | 2,214,521 | ||
April 1, 2012
|
$ | 1,360,712 | ||
April 1, 2013
|
$ | 506,904 | ||
The BORROWER agrees immediately to deposit such cash with the BANK as may be necessary to comply
with such increased MINIMUM REQUIRED CASH COLLATERAL AMOUNT requirement.
(b) If after March 31, 2006 but before April 30, 2006 (i) no event or circumstance shall have
occurred and be continuing which is or, with the giving of notice, the lapse of time, or both,
would be an Event of Default under any of the DOCUMENTS, (ii) the BORROWER shall have been in
compliance with the FINANCIAL COVENANTS as of March 31, 2006 as if the limited waiver set forth in
Section 2 had not been given, and shall have delivered to the BANK, in accordance with the
requirements of the DOCUMENTS, a certificate indicating such compliance as of such date, (iii) the
BORROWER shall have made all payments required to be made under the DOCUMENTS through the later of
(x) the date of delivery of the aforesaid compliance certificate and (y) April 1, 2006 (or, if such
day is not a Business Day, the next Business Day), and
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(iv) the BORROWER shall have delivered to
the BANK a pro forma compliance certificate to the effect that (A) after giving effect to all
payments required to be made by the BORROWER on account of its liabilities through the period
ending April 30, 2006 (including the amounts due to the BANK under the LC AGREEMENT), no event or
circumstance shall have occurred which is or, with the giving of notice, the lapse of time, or
both, would be an Event of Default under the DOCUMENTS, and (B) without limiting clause (A) above,
the BORROWER shall be in full compliance with the FINANCIAL COVENANTS as of April 30, 2006, which
pro forma compliance certificate shall be accompanied by all supporting financial information and
calculations, then, the table in paragraph (a) above setting forth the MINIMUM REQUIRED
CASH COLLATERAL AMOUNTS for the dates occurring on or after April 1, 2006 shall cease to be
effective, and the MINIMUM REQUIRED CASH COLLATERAL AMOUNTS for such dates shall be as set forth in
the table contained in Section 2.3(a) of the COLLATERAL/CONTROL AGREEMENT before giving effect to
paragraph (a) above.
(c) Nothing contained in this AGREEMENT is intended to limit the right of the BORROWER to
obtain the return to the BORROWER of CASH COLLATERAL to the extent that the amount of the CASH
COLLATERAL which is at any time held in the COLLATERAL ACCOUNT exceeds the MINIMUM REQUIRED CASH
COLLATERAL AMOUNT required by the terms of the COLLATERAL/CONTROL AGREEMENT as modified by the
terms of this AGREEMENT.
Section 4. Investment Of Cash Collateral. Pursuant to Section 5.1 of the
COLLATERAL/CONTROL AGREEMENT, the BORROWER may instruct the BANK to invest funds of the BORROWER,
which may include cash proceeds of other properties of the BORROWER presently held in the
COLLATERAL ACCOUNT, in one or more certificates of deposit issued by the BANK or in one or more
other deposit accounts at the BANK (which may include a deposit account designated by the BANK as a
“money market account”) (such certificates of account, accounts, and money market accounts are
collectively referred to as the “PLEDGED DEPOSIT ACCOUNT”, whether or not evidenced by a
certificate). The BORROWER acknowledges and agrees that the funds held in the PLEDGED DEPOSIT
ACCOUNT will in most cases not be federally insured, but shall nevertheless be deemed to be a
“PERMITTED INVESTMENT” (as defined in the COLLATERAL/CONTROL AGREEMENT). The PLEDGED DEPOSIT
ACCOUNT shall have an “ADVANCE RATE TO MAINTAIN PROPERLY MARGINED CASH COLLATERAL” (as such term is
used in Schedule 2 of the COLLATERAL/CONTROL AGREEMENT) of one hundred percent (100%) if the
PLEDGED DEPOSIT ACCOUNT is either a certificate of deposit issued by the BANK or is an investment
in the MTB U.S. Treasury Fund (symbol “AKTXX”). Any other money market funds selected by the
BORROWER shall be subject to the presently stated ADVANCE RATE TO MAINTAIN PROPERLY MARGINED CASH
COLLATERAL of ninety percent (90%). The BORROWER acknowledges that the PLEDGED DEPOSIT ACCOUNT is
intended to be held and maintained by the BANK in the COLLATERAL ACCOUNT in accordance with the
requirements of Section 2.5 of the COLLATERAL/CONTROL AGREEMENT and that the PLEDGED DEPOSIT
ACCOUNT will be maintained solely in the name of the BANK and not in the name of the BORROWER. The
“ADJUSTED MARKET VALUE (ITEM),” as that term is defined in the COLLATERAL/CONTROL AGREEMENT, of the
PLEDGED DEPOSIT ACCOUNT shall be counted toward the “ADJUSTED MARKET VALUE OF THE CASH COLLATERAL”
for purposes of the COLLATERAL/CONTROL AGREEMENT. In order to secure the LETTER OF CREDIT
OBLIGATIONS, the BORROWER hereby grants a security interest to the BANK in and to the COLLATERAL
ACCOUNT and the products and proceeds thereof (and all substitute and replacement accounts) and in
and to the PLEDGED DEPOSIT ACCOUNT (which is likely to be designated as account number
31003913118509 but which may have different numbers from time to time) and in all funds contained
therein and in and to all “CASH COLLATERAL,” as such term is defined in the COLLATERAL/CONTROL
AGREEMENT, and the proceeds thereof and in all replacement or substituted certificates of deposit,
bank accounts, money market accounts, and the contents and proceeds thereof, and all interests of
the BORROWER in any of the foregoing. The BORROWER will also execute and deliver to the BANK such
additional agreements, writings or instruments as the BANK may be require in order to establish,
perfect or set forth the
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terms of the BANK’S security interest in the COLLATERAL ACCOUNT, the CASH
COLLATERAL, the PLEDGED DEPOSIT ACCOUNT, or any part thereof. Nothing contained in this AGREEMENT
is intended to modify, negate or change the rights of the BORROWER set forth in Section 5.1 of the
COLLATERAL/CONTROL AGREEMENT to control and direct the investment and reinvestment of CASH
COLLATERAL in PERMITTED INVESTMENTS, including without limitation funds held in the COLLATERAL
ACCOUNT (including funds held in the PLEDGED DEPOSIT ACCOUNT).
Section 5. Acknowledgments Of Issuer. The ISSUER acknowledges that: (a) the INSURANCE
AGREEMENT is in full force and effect and to the best of the ISSUER’S knowledge, the BORROWER and
the BANK are each in compliance with all of their respective obligations thereunder; and (b) the
ISSUER has received delivery of a “collaborative agreement” from the BORROWER and that pursuant to
Section 3.1.D of the INSURANCE AGREEMENT the amount of the ISSUER’S insurance will not be
reduced to twenty-five percent (25%), but rather shall remain at thirty percent (30%). In
furtherance of the foregoing provisions of this Section, the first sentence of the definition of
“INSURED PORTION OF THE DEBT” set forth in Section 1.1 of the INSURANCE AGREEMENT is hereby deleted
and the following inserted in lieu thereof: “INSURED PORTION OF THE DEBT” means thirty percent
(30%) of the Debt.”
Section 6. Release Of Certain Equipment. The BORROWER may request that it be
permitted to sell or otherwise dispose of items of equipment which has become obsolete, by
providing the BANK and the ISSUER with a detailed description of such equipment and, with respect
to each item, the manner of the BORROWER’S proposed disposition thereof (e.g., sale) and
the amount of any net proceeds to be received in connection with such sale or disposition. The
BANK in its sole discretion, and the ISSUER, to the extent the ISSUER’S approval of any such sale
or other disposition is required pursuant to the DOCUMENTS, may grant or withhold approval of such
sale or other disposition. If approval of any such sale or other disposition of any such item of
equipment is granted, the security interest under the DOCUMENTS in such item shall be released upon
the sale or disposition of such item, subject however, to the payment to the BANK, for deposit into
the COLLATERAL ACCOUNT, of an amount equal to the proceeds of such sale or disposition, net of the
reasonable costs of such sale or disposition (provided that the amount of such net proceeds
actually received is not less than the amount thereof approved by the BANK and, if applicable, the
ISSUER).
Section 7. Permitted SUBORDINATED OBLIGATIONS. The parties hereto agree that
notwithstanding any provisions to the contrary in the DOCUMENTS, the BORROWER shall have the right,
upon ten (10) days prior written notice to the BANK, to enter into “SUBORDINATED OBLIGATIONS” (as
defined below) with any of the BORROWER’S shareholders (the “SHAREHOLDER PAYEES” defined below) so
long as such SUBORDINATED OBLIGATIONS expressly contain and set forth and are subject to the
following provisions:
| (a) | All obligations of the Company to pay the principal of and interest on and all other amounts and liabilities in connection with any indebtedness to its Shareholders Payees, whether such indebtedness, obligations and liabilities are now existing or hereafter arising (collectively, the “Subordinated Obligations”) are hereby expressly subordinated to and in favor of the indefeasible and full payment in cash of all of the Senior Indebtedness, as hereinafter defined, to the extent and in the manner hereinafter set forth. |
| (b) | As used herein, the term Senior Indebtedness shall mean indebtedness, liabilities and obligations of the Company to Manufacturers and Traders Trust Company (“Bank”) of every kind and nature whatsoever, whether now existing or hereafter arising or created any time, including without limitation, all indebtedness, liabilities and obligations of the Company to the Bank which are direct, indirect, contingent, primary, secondary, alone, jointly with others, due, to become due, unsecured, secured, or future advances and including, |
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| without limitation, all liabilities, indebtedness and obligations of the Company to the Bank. |
| (c) | Until the Senior Indebtedness has been fully and indefeasibly paid in cash, the Shareholder Payees shall not, without prior written consent of the Bank, ask for, demand, accelerate, declare a default under, xxx for, set off, accept or receive any payment of all or any part of the Subordinated Obligations except that the Payee may receive securities that are subordinate to the Senior Indebtedness to at least the same extent as the Subordinated Indebtedness. |
| (d) | The Shareholder Payees and the Company shall agree, represent and warrant that the Subordinated Obligations are not secured in any way, directly or indirectly, including, without limitation, by security agreement, pledge agreement, guaranty agreement, mortgage, deed of trust, or any other document, lien, encumbrance or otherwise. |
| (e) | In the event of any distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of the Company or the proceeds thereof to creditors of the Company or to any indebtedness, liabilities and obligations of the Company, by reason of the liquidation, dissolution or other winding up of the Company or the Company’s business, or in the event of any sale, receivership, insolvency or bankruptcy proceeding, or assignment for the benefit of creditors, or any proceeding by or against the Company for any relief under any bankruptcy or insolvency law, then any payment or distributions of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to all or any part of the Subordinated Obligations shall be paid or delivered directly to the Bank for application to the Senior Indebtedness (whether due or not due and in such order and manner as the Bank may elect; and including, without limitation, any interest accruing subsequent to the commencement of any such event or proceeding) until the Senior Indebtedness shall have been fully paid and satisfied. The Shareholder Payees hereby irrevocably authorize and empower the Bank, and irrevocably appoints the Bank the Attorneys-in fact for the Shareholder Payees to demand, xxx for, collect and receive every such payment or distribution and give acquittance therefor and to file claims and take such other proceedings in the name of the Bank or in the names of the Shareholder Payees or otherwise, as the Bank may deem necessary or advisable to carry out the provisions hereof. |
| (f) | The Company and the Shareholder Payees agree that the Bank is a third-party beneficiary of the subordination provisions of any Subordinated Obligations and shall be entitled to enforce such provisions by proceedings at law or in equity or otherwise. If any of the Senior Indebtedness should be transferred or assigned by the Bank, the provisions of any Note evidencing any Subordinated Obligations will inure to the benefit of the transferee and assignee to the extent of such transfer or assignment, provided that the Bank shall continue to have the unimpaired right to enforce the provisions of said Note as to any of the Senior Indebtedness not so transferred or assigned. The subordinate provisions of any Subordinated Obligations shall be binding upon the Shareholder Payees and the Company and their respective successors and assigns. None of the subordinate provisions of any |
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| Subordinated Obligations may be waived, modified or amended without the prior written consent of the Bank, or if any of the Senior Indebtedness has then been transferred or assigned, by the then holders or obliges of all of the Senior Indebtedness. |
| (g) | The Company shall provide written notice to the Shareholder Payees as to any additional Senior Indebtedness incurred by or agreed to by the Company after the date hereof and during such time that any amounts are outstanding under any Subordinated Obligations. |
Section 8. Expenses. The BORROWER agrees to reimburse the BANK and the ISSUER upon
demand for the costs and expenses incurred by the BANK and the ISSUER in connection with the
preparation of this AGREEMENT, including reasonable attorneys’ fees. The BORROWER further agrees
to reimburse the BANK for costs incurred for an asset appraisal that was obtained in accordance
with the terms of the MODIFICATION AGREEMENT between the parties. The execution and delivery by
the BORROWER of this AGREEMENT to the BANK shall authorize the BANK to debit and charge the
BORROWER’S deposit account #970184752 for the costs and expenses incurred by the BANK and the
ISSUER, including reasonable attorneys’ fees, in connection with the preparation of this AGREEMENT,
and for the above-stated asset appraisal costs.
Section 9. No Novation. It is the intent of the BORROWER, the ISSUER, and the BANK
that nothing contained in this AGREEMENT shall be deemed to effect or accomplish or otherwise
constitute a novation of any of the DOCUMENTS or of any of the obligations owed by the BORROWER in
accordance with any of the DOCUMENTS.
Section 10. Enforceability. This AGREEMENT shall inure to the benefit of and be
enforceable against the parties hereto and their respective successors and assigns.
Section 11. Choice Of Law; Consent To Jurisdiction; Agreement As To Venue. This
AGREEMENT shall be construed, performed and enforced and its validity and enforceability determined
in accordance with the laws of the State of Maryland (excluding, however, conflict of laws
principles). The BORROWER consents to the jurisdiction of the courts of the State of Maryland and
the jurisdiction of the United States District Court for the District of Maryland, if a basis for
federal jurisdiction exists. The BORROWER waives any right to object to the maintenance of a suit
in any of the state or federal courts of the State of Maryland on the basis of improper venue or
inconvenience of forum.
Section 12. Waiver Of Jury Trial. Each of the parties agrees that any suit, action,
or proceeding, whether claim or counterclaim, brought or instituted by any of the parties, or any
successor or assign of any of the parties , on or with respect to this AGREEMENT or any of the
DOCUMENTS or which in any way relates, directly or indirectly, to the obligations of the BORROWER
under the DOCUMENTS or this AGREEMENT or the dealings of the parties with respect thereto, shall be
tried by a court and not by a jury. THE PARTIES HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY
JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.
Section 13. RELEASE. IN ORDER TO INDUCE THE BANK AND THE ISSUER TO ENTER INTO THIS
AGREEMENT, THE BORROWER FOREVER RELEASES AND DISCHARGES THE BANK AND THE ISSUER AND THE OFFICERS,
DIRECTORS, EMPLOYEES, ATTORNEYS, AGENTS, SUCCESSORS, AND ASSIGNS OF THE BANK AND THE ISSUER
(COLLECTIVELY, THE “RELEASED PARTIES”) FROM ANY AND ALL CLAIMS, CAUSES OF ACTION, SUITS AND DAMAGES
(INCLUDING CLAIMS FOR ATTORNEYS’ FEES AND COSTS) WHICH THE BORROWER EVER HAD OR MAY NOW HAVE
AGAINST ANY OF THE
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RELEASED PARTIES, WHETHER KNOWN OR UNKNOWN, INCLUDING BUT NOT LIMITED TO ANY AND
ALL CLAIMS BASED UPON OR RELYING ON ANY ALLEGATIONS OR ASSERTIONS OF DURESS, ILLEGALITY,
UNCONSCIONABILITY, BAD FAITH, BREACH OF CONTRACT, REGULATORY VIOLATIONS, NEGLIGENCE, MISCONDUCT, OR
ANY OTHER TORT, CONTRACT OR REGULATORY CLAIM OF ANY KIND OR NATURE. THIS RELEASE IS INTENDED TO BE
FINAL AND IRREVOCABLE AND IS NOT SUBJECT TO THE SATISFACTION OF ANY CONDITIONS OF ANY KIND.
IN WITNESS WHEREOF, the parties have executed this AGREEMENT with the specific intention of
creating a document under seal to be effective as of the date first above written. This AGREEMENT
may be executed and delivered in counterparts.
| WITNESS/ATTEST: | AVALON PHARMACEUTICALS, INC. | |||||||
| By: | /s/ Xxxxxxx X. Xxxxxx | (SEAL) | ||||||
| Name: | Xxxxxxx X. Xxxxxx Ph. D. | |||||||
| Title: | President and CEO | |||||||
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
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Signature Page to Modification And Consent Agreement– Continued:
| WITNESS/ATTEST: | MARYLAND INDUSTRIAL DEVELOPMENT FINANCING AUTHORITY |
|||||||
| By: | /s/ D. Xxxxxxx Xxxx | (SEAL) | ||||||
| Name: | D. Xxxxxxx Xxxx | |||||||
| Title: | Executive Director | |||||||
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
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Signature Page to Modification And Consent Agreement – Continued:
| MANUFACTURERS AND TRADERS TRUST COMPANY |
||||||||
| By: | /s/ Xxxxxxx X. Gattiff | (SEAL) | ||||||
| Name: | Xxxxxxx X. Gattiff | |||||||
| Title: | Vice President | |||||||
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